July 14th, 2022
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) has refiled the Digital Economy VAT Law (House Bill No. 372), which will close ambiguities in the VAT system that have allowed some digital services and goods sold over the digital space to remain outside the coverage of VAT. Salceda says he hopes the fiscal space from the proposal will provide fiscal space to support digitalization of small businesses, a national broadband network, and jobs centers and training for digital freelancers. Salceda also says that the tax administration measure will support fiscal program of President Bongbong Marcos.
“The digital economy is growing rapidly, but digital economy taxation is falling flat. Imagine, in 2019, the digital economy tax collections of the BIR was at 45 billion. By 2020, it was still at around 45 billion. That’s hardly believable given the increase in digital transactions,” Salceda said.
Salceda added that “in fact, just to clarify, this is not a new tax. We pay VAT for almost al goods and services, except those specifically exempted by law. It goes without saying that the digital economy should be subject to VAT, but we are unable to capture these revenues because of ambiguities in tax laws.”
“This bill clarifies that digital services such as digital advertising, subscription-based services, and other online services that can be delivered through the internet as VAT-able. The measure also aims to strengthen tax compliance through simplified invoicing and registration requirements for VAT-registered nonresident DSPs,” Salceda’s explanatory note states.
“Goods sold over the electronic space, meanwhile, should not need any further legislation to be covered, but I have proposed to the BIR that they establish a digital economy taxation service to have a dedicated unit for the growing digital sector,” Salceda, referring to online shopping of goods, added.
The proposal could yield 154.0 billion pesos in incremental revenues over five years. Together with Salceda’s proposed digital economy taxation service, which could yield another 72.5 billion over five years, digital economy taxation reforms in tax administration could yield up to 226.5 billion over the medium term.
“Our tax system really needs to catch up to the digital economy, which grows and changes by the day,” Salceda said.
Salceda adds that they are also considering providing a framework for the taxation of digital assets such as Non-Fungible Tokens, cryptocurrency, and others.
“I will create a Technical Working Group on Digital Asset Taxation within the Committee on Ways and Means to study whether these assets can be considered services, and therefore VATable, or should be taxed differently. I understand that Secretary [Benjamin] Diokno also has his own opinions on digital currencies, being from the Bangko Sentral. So, his thoughts will determine much of the direction of that TWG’s work,” Salceda added.
Salceda also seeks to clarify the tax regime for digital gambling.
“Unlike underground or informal gambling, we can capture digital gambling revenues through the payment systems employed. So, I am also deputizing a TWG for Digital Betting and Amusements Taxation to make recommendations to the Committee,” Salceda added.
“Of course, all of these will also require that the BIR is digital-ready. So, we will continue to work with BIR on digital tax registration and payment, electronic invoicing, big data tax analytics, and other digitalization efforts, including the use of electronic data for risk-based auditing,” Salceda added.